Special First Division: Court of Tax Appeals

Republic of the Philippines
COURT OF TAX APPEALS

Quezon City
SPECIAL FIRST DIVISION
NORTHERN MINDANAO CTA Case No. 8959

SALES CORPORATION, For: Assessment
Petitioner,
Members:
-versus- DEL ROSARIO, P.J., Chairperson

UY, and
MINDARO-GRULLA, JJ .
COMMISSIONER OF
I NTERNAL REVENUE, Promulgated:
Respondent.
MAR lJJ919- ; 2-;o\r
x- - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
MINDA RO-GRULLA, J.:
This is a Petition for Review 1 filed on December 23, 2014 by

Northern Mindanao Sales Corporation to seek the reversal and setting
aside of the Final Assessment Notice (FAN) dated May 21, 2014,
assessing it in the amount of P34,402,825.83, allegedly representing
its deficiency value-added tax (VAT), inclusive of surcharge, interest
and compromise penalty for the period covering January 1, 2012 to
June 30, 2012.
Petitioner Northern Mindanao Sales Corporation is a corporation

duly organized and existing under Philippine laws, with business
address at 114 Legaspi St., Legaspi Village, Makati City. It is principally
engaged in the business of buying, selling, distributing, marketing at
wholesale and retail of fermented liquor, bottled water and other
beverages. 2 Petitioner is registered with the Securities and Exchange
Commission (SEC), with duly issued SEC Company Registration No.
1 Docket, vol. I, pp. 14-40.

2
Exhibit "P-8", Docket, vol. II, p. 745; Par. 3, Joint Stipulation of Facts and Issues (JSFI), Docket,
vol. I, p. 491.
c..
CTA CASE NO. 8959 Page 2
Northern Mindanao Sales Corp. vs. CIR
DECISION
AS091-194156. 3 It is also registered with the Bureau of Internal

Revenue (BIR), as evidenced by its Certificate of Registration No. OCN
9RC0000100816 issued on June 5, 1996.4
On the other hand, respondent is the duly appointed

Commissioner of the Bureau of Internal Revenue who has the power
to decide on disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto or other
matters arising under the National Internal Revenue Code (NIRC) or
other laws or portions thereof administered by the BIR. He holds office
at the BIR National Office Building, BIR Road, Diliman, Quezon City.
On November 22, 2012, petitioner received Letter of Authority

(LOA) No. LOA-VOS-2012-00000119 dated November 21, 2012,
authorizing concerned revenue officers to examine its books of
accounts and other accounting records for VAT for the period from
January 1, 2012 to June 30, 2012 pursuant to Revenue Memorandum
Order (RMO) 20-2012, VAT Audit Program. 5
On June 27, 2013, petitioner received a Notice for an Informal

Conference with the Details of Discrepancies from respondent
assessing it for alleged deficiency VAT in the aggregate amount of
P60,847,208.37, inclusive of surcharge and interest. 6
On July 10, 2013 and July 12, 2013, petitioner submitted its
supporting documents as evidenced by Transmittal Letters dated July
10, 2013 7 and July 11, 2013 8, respectively. 9 On July 30, 2013,
petitioner received respondent's Letter informing it of the receipt of
the schedules and certificates relative to the Notice for an Informal
Conference and requested for the submission of additional
documents. 10
On September 25, 2013, petitioner received another Notice for

an Informal Conference together with the Details of Discrepancies 11
3
Exhibit "P-7", Docket, vol. II, p. 744; Par. 4, JSFI, Docket, vol. I, p. 491.
4
Exhibit "P·9", Docket, vol. II, p. 770; Par. 5, JSFI, Docket, vol. I, p. 491.
5
6
Exhibits "P-22" and "P23", Docket, vol. II, pp. 788-792; Par. 10, JSFI, Docket, vol. I, p. 491.
7
Exhibit "P-24", Docket, vol. II, p. 793-794.
8 Exhibit "P-25", Docket, vol. II, p. 795.
9
Par. 11, JSFI, Docket, vol. I, p. 491.
10
11
Exhibits "P-27" and "P-28", Docket, vol. II, pp. 797-801.
l
DECISION
dated September 24, 2013 from respondent, assessing it for deficiency

VAT in the aggregate amount of P98,209,204.62, inclusive of
surcharge and interest.
Petitioner received the Preliminary Assessment Notice (PAN) Part

I with Details of Discrepancies and PAN Part II dated April 29, 2014. 12
On May 21, 2014, 13 petitioner received the Formal Assessment

Notice I with Details of Discrepancies and Formal Assessment Part II
and Assessment Notices (FAN) 14 of same date.
On May 29, 2014, petitioner filed its administrative protest dated

May 28, 2014 against the FAN, praying for the cancellation and
withdrawal of the proposed assessments, with the Office of the
Regional Director, Revenue Region No. 8 - Makati City. 15
On November 5, 2014, petitioner received respondent's Letter16

dated October 21, 2014, acknowledging receipt of the Protest Letter
dated May 28, 2014 together with the schedules and documents,
relative to the FAN dated May 21, 2014 covering deficiency VAT in the
amount of P34,402,825.83, inclusive of increments for the period from
January 1, 2012 to June 30, 2012. 17
Petitioner filed the present Petition for Review on December 23,

2014. Thereafter, respondent filed his Answer, through registered
mail on March 6, 2015 and received by the Court on March 23, 2015,
interposing the following Special and Affirmative Defenses:
"SPECIAL AND AFFIRMATIVE DEFENSES
1. Respondent reiterates and repleads the preceding

paragraphs of the answer as part of her Special and Affirmative
Defenses.
12
Exhibits "R-6" and submarkings, BIR Records, pp. 1083-1088; Par. 14, JSFI, Docket, vol. I, p.
492.
13
As culled from Exhibit "P-6", BIR Records, p. 1365.
14
Exhibits "P-1" to "P-5", BIR Records, pp. 1089-1096 and Exhibits "R-7" and submarkings, BIR
Records, pp. 1097-1102.
15
Exhibit "P-6", BIR Records, pp. 1357-1365; Par. 15, JSFI, Docket, vol. I, p. 492.
16 Exhibit "P-29", BIR Records, p. 1367.
17
Par. 16, JSFI, Docket, vol. I, p. 492.
l
CfA CASE NO. 8959 Page 4
DECISION
2. The Preliminary Assessment Notice (PAN) was

received by petitioner.
3. Assessment is prima facie presumed correct and made

in good faith. The taxpayer has the duty of proving otherwise.
In the absence of proof of any irregularities in the performance
of official duties, an assessment will not be disturbed. (Aban,
Law of Basic Taxation in the Philippines, pt Edition, p. 109);
4. Finally, Petitioner should be reminded that taxes are

important because it is the lifeblood of the government and so
should be calculated without unnecessary hindrance
(Commissioner vs. Algue, Inc. L-28896, 17 February 1988).
Taxes are enforced proportional contribution from persons and
property levied by the state, thus, no one is considered entitled
to recover that which he must give up to another - Non videtur
quisquam id capere quod ei necesse est alii restitutere."
The pre-trial conference 18 was set on June 4, 2015.

Respondent's Pre-Trial Brief1 9 was filed on May 27, 2015; while
petitioner's Pre-Trial Brief2° was filed on May 29, 2015.
The parties filed their Joint Stipulation of Facts and Issues21 on

June 24, 2015. The Court then issued the Pre-Trial Order22 on July 13,
2015.
Petitioner presented, Rommel R. Malit23 and Independent

Certified Public Accountant (ICPA) Danilo Y. Ponay as its witnesses. 24
The Formal Offer of Evidence for the Petitioner25 was filed on

October 21 , 2016 I offering Exhibits "P-7"I "P-8"I "P-9"I "P-10"I "P-10-
A" ' "P-11"I "P-11-A"I "P-12"I "P-12-A"I "P-13"I "P-13-A"I "P-14"I "P-
14-A"' "P-15"I "P-15-A"I "P-16"I "P-16-A"I "P-19"I "P-20"I "P-22"I "P-
23"I "P-24"I "P-25"I "P-26"I "P-27"I "P-28"I "P-1"I "P-2"I "P-3"I "P-4"I
18
Notice of Pre-Trial Conference dated March 25, 2015, Docket, val. I, pp. 326-327.
1
9 Docket, val. I, pp. 333-337.
20 Docket, val. I, pp. 373-380.
21
Docket, val. I, pp. 490-498.
22
Docket, val. II, pp. 506-516.
23
Minutes of the hearing dated October 6, 2015, Docket, val. II, pp. 565-566.
24
Minutes of the hearing dated September 13, 2016, Docket, val. II, pp. 706-708.
25
L
DECISION
"P-5", "P-6"I "P-29"I "P-31"I "P-31-A"I "P-33"I "P-33-a"I "P-32"I "P-32-

a"I "P-32-b"I "P-34 and series"I "P-35 and series"I "P-36 and series"I
"P-37 and series"' "P-38 and series"I "P-39 and series"I "P-32-c"I "P-
32-d", "P-32-e", "P-32-f", "P-32-g", "P-32-h", "P-34-A- and numerical
series", "P-34-B- and numerical series", "P-34-C- and numerical
series", "P-34-D- and numerical series", "P-35-A- and numerical
series", "P-39-D- and numerical series", "P-40- and numerical series",
"P-41- and numerical series", "P-42- and numerical series", "P-43- and
numerical series", "P-44- and numerical series" and "P-45- and
numerical series", as its documentary evidence. Respondent filed his
Comment (To: Petitioner's Formal Offer of Evidence) 26 through
registered mail on October 25, 2016 and received by the Court on
November 16, 2016.
In the Resolution 27 dated April 4, 2017, the Court admitted all of

the formally offered exhibits of petitioner, but denied the admission of
Exhibit "P-38-B and numerical series".
Petitioner's admitted documentary exhibits are as follows:
Exhibit: Description:
P-1 Formal Assessment Notice (Part I) consisting of two
(2) pages dated May 21, 2014
P-2 Details of Discrepancies attached to the Formal
Assessment Notice (Part I) consisting of three (3)
pages dated May 21, 2014
P-3 Formal Assessment Notice (Part II) consisting of one
(1) page dated May 21, 2014
P-4 Assessment Notice (No. vr-ELA16492-12-14-509)
dated May 21 2014
P-5 Assessment Notice (No. MC-ELA16492-12-14-509)
dated May 21, 2014
26 Docket, val. II, pp. 822-823.

27 Docket, val. II, pp. 830-831.
t..
DECISION
P-6 Administrative Protest dated May 28, 2014 and

stamped received by BIR Reg. No. 8 Makati on May
29, 2014
P-7 Petitioner's Certificate of Registration issued by
Securities and Exchange Commission (SEC) bearing
Registration No. AS091-194156
P-8 Petitioner's Articles of Incorporation
P-9 Petitioner's Certificate of Registration issued by
Bureau of Internal Revenue bearing Registration No.
000-079-592-000
P-10 to P-10-A Petitioner's Monthly Value-Added Tax Declaration
(BIR Form 2550M) for the month of January 2012
with BTR-BIR Deposit Slip for the amount of
Php170 214.68
P-11; P-11-A Petitioner's Monthly Value-Added Tax Declaration
(BIR Form 2550M) for the month of February 2012
Php202,169.60
P-12; P-12-A Petitioner's Quarterly Value-Added Tax Declaration
(BIR Form 2550Q) for the First Quarter of CY 2012
Php297,051.69
(BIR Form 2550M) for the month of April 2012 with
BTR-BIR Deposit Slip for the amount of
Php735,872.11
(BIR Form 2550M) for the month of May 2012 with
BTR-BIR Deposit Slip for the amount of
Php815,002.50
P-15; P-15-A Petitioner's Quarterly Value-Added Tax Declaration
(BIR Form 2550Q) for the Second Quarter of CY 2012
Php229,811.15
P-16; P-16-A Letter of Authority (SN:eLA201100016492/LOA-V08-
2012-00000119 dated November 21, 2012 with
Checklist of Requirements
P-19 Transmittal Letter dated December 21, 2012, duly
received by Bureau of Internal Revenue (BIR)-Makati
on January 2, 2013
P-20 Transmittal Letter dated February 18, 2013, duly
received by Bureau of Internal Revenue (BIR) -
Makati on Februa_ry 18, 2013
P-22; P-23 Notice for an Informal Conference dated June 27,
2013 with Details of Discrepancies for the amount of
Php60,847,208.37
P-24 Transmittal Letter dated July 10, 2013, duly received
by Bureau of Internal Revenue (BIR) - Makati on the
same date, July 10, 2013, consisting of two (2) pages
t..
erA CASE NO. 8959 Page 7
DECISION
P-25 Transmittal Letter dated July 11, 2013, duly received

by Bureau of Internal Revenue (BIR) - Makati on July
12, 2013
P-26 Letter dated July 30, 2013, from BIR - Revenue
Region No. 8, Makati City, signed by then Regional
r----- Director Nestor S. Valeroso
P-27; P-28 Notice for an Informal Conference dated June 27,
2013 with Details of Discrepancies for the amount of
Php98,209 ,204.62
P-29 BIR Letter signed by Regional Director Jonas DP
Jamora addressed to Villanueva & Capitan Law Office,
dated October 21, 2014, acknowledging receipt of
Protest Letter on May 29, 2014 in relation to Formal
Assessment Notice (FAN) dated May 21, 2014 (LOA-
V08-20112-00000 dated November 13, 2012)
P-31 Judicial Affidavit of Romel R. Malit
-
P-31-A Signature of Romel R. Malit
P-33 Amended Judicial Affidavit of Danilo Y. Ponay, 1
consisting of seventeen (17) pages, filed on August 1, ·

2016
P-33-a Signature of ICPA Danilo Y. Ponay found on page 16
P-32 Amended ICPA Report for CTA Case No. 8959: 1
Northern Mindanao Sales Corporation vs. The 1
Commissioner of Internal Revenue, consisting of six

(6) pages, submitted on July 18 2016
P-32-a Signature of ICPA Danilo Y. Ponay found on page 6
P-32-b Top Sheet of monthly totals of Sales for all of the four
Sales Offices - Bukidnon, Butuan, Cagayan de Oro
and Surigao ), consisting of three (3) pages
P-32-c Petitioners Schedule of Input Tax of Minor Suppliers
and Contractors, January 2012, consisting of three (3)
pages
P-32-d Petitioners Schedule of Input Tax of Minor Suppliers
and Contractors, February 2012, consisting of two (2)
pages
P-32-e Petitioners Schedule of Input Tax of Minor Suppliers
and Contractors, March 2012, consisting of two (2)
pages
P-32-f Petitioners Schedule of Input Tax of Minor Suppliers
and Contractors, April 2012, consisting of three (3)
pages
P-32-h Petitioners Schedule of Input Tax of Minor Suppliers
and Contractors, June 2012, consisting of three (3)
pages
P-34 and series "Northern Mindanao Sales Corp. ICPA Book 1:
January, 2012, CTA Case No. 8959, Northern
Mindanao Sales Corporation vs. The Commissioner of
Internal Revenue" (Schedule of Petitioner's Sales
'-----
Invoices for January CY 2012)
~
DECISION
P-34-A and Sales Invoices for January 2012 for Bukidnon (Box 1)
numerical series
P-34-B and Sales Invoices for January 2012 for Butuan (Box 2)
numerical series
P-34-C and Sales Invoices for January 2012 for Cagayan De Oro
numerical series (Boxes 3 & 4l
I
P-34-D and Sales Invoices for January 2012 for Surigao (Box 5) !
numerical series '
P-35 and series "Northern Mindanao Sales Corp. ICPA Book 2:

February, 2012, CTA Case No. 8959, Northern
Mindanao Sales Corporation vs. The Commissioner of
Internal Revenue" (Schedule of Petitioner's Sales
-- Invoices for February CY 2012)
P-35-A and Sales Invoices for February 2012 for Bukidnon (Box
numerical series 6)
P-35-B and Sales Invoices for February 2012 for Butuan (Box 7)
numerical series
P-35-C and Sales Invoices for February 2012 for Cagayan De Oro
numerical series (Boxes 8 & 9)
P-35-D and Sales Invoices for February 2012 for Surigao (Box 10)
numerical series
P-36 and series "Northern Mindanao Sales Corp. ICPA Book 3: March,
2012, CTA Case No. 8959, Northern Mindanao Sales
Corporation vs. The Commissioner of Internal
Revenue" (Schedule of Petitioner's Sales Invoices for
March CY 2012)
P-36-A and Sales Invoices for March 2012 for Bukidnon (Box 11)
numerical series
P-36-B and Sales Invoices for March 2012 for Butuan (Box 12)
numerical series
P-36-C and Sales Invoices for March 2012 for Cagayan De Oro
P-36-D and Sales Invoices for March 2012 for Surigao (Box 15)
numerical series
P-37 and series "Northern Mindanao Sales Corp. ICPA Book 4: April,
April CY 2012)
P-37-A and Sales Invoices for April 2012 for Bukidnon (Box 16)
numerical series
P-37-B and Sales Invoices for April 2012 for Butuan (Box 17)
numerical series
P-37-C and Sales Invoices for April 2012 for Cagayan De Oro
P-37-D and Sales Invoices for April 2012 for Surigao (Box 20)
numerical series
P-38 and series "Northern Mindanao Sales Corp. ICPA Book 5: May,
Corporatio_Q_vs. The Commissioner of Internal
--
L
DECISION

May CY 2012)
P-38-A and Sales Invoices for May 2012 for Bukidnon (Box 21)
numerical series
P-38-C and Sales Invoices for May 2012 for Cagayan De Oro
P-38-D and Sales Invoices for May 2012 for Surigao (Box 25)
numerical series
P-39 and series "Northern Mindanao Sales Corp. ICPA Book 6: June,
June CY 2012J
P-39-A and Sales Invoices for June 2012 for Bukidnon (Box 26)
numerical series
P-39-B and Sales Invoices for June 2012 for Butuan (Box 27)
numerical series
P-39-C and Sales Invoices for June 2012 for Cagayan De Oro
P-39-D and Sales Invoices for June 2012 for Surigao (Box 30)
numerical series
P-40 and Purchase Invoices for January 2012 (Box 31)
numerical series
P-41 and Purchase Invoices for February 2012 (Box 31)
numerical series
P-42 and Purchase Invoices for March 2012 (Box 31)
numerical series
P-43 and Purchase Invoices for April 2012 (Box 31)
numerical series
P-44 and Purchase Invoices for May 2012 (Box 31)
numerical series
P-45 and Purchase Invoices for June 2012 (Box 31)
numerical series
Petitioner filed its Motion for Reconsideration (Resolution dated

April 4, 2017) 28 on April 26, 2017. Respondent failed to file his
comment thereto. 29 The Court still denied the admission of Exhibit "P-
38-B and numerical series" in the Resolution 30 dated August 18, 2017.
Respondent presented Revenue Officer Jasmine Joy B. Oasay as

his only witness. 31
28 Docket, vol. II, pp. 837-839.

29
Records Verification dated July 5, 2017, Docket, vol. II, p. 854.
30
Docket, vol. II, pp. 859-860.
31
Minutes of the hearing dated August 22, 2017, Docket, vol. II, pp. 861-863.
t-
DECISION
Respondent filed his Formal Offer of Evidence32 through

registered mail on September 6, 2017 and received by the Court on
September 14,2017, offering Exhibits"R-1", "R-1-a", "R-1-b", "R-1-c",
"R-2" "R-2-a" "R-3" "R-3-a" "R-4" "R-4-a" "R-5" "R-5- a" "R-5-b"
"R-5-c" ' "R-5-d"' "R-6"
' "R-6-b" ' "R-6-e"
' '
"R-6-g" '
"R-6-i" '
"R-6-1" "R-'
'
6-c" "R-6-J'" '
"R-6-m" '"R-6-a" '"R-6-d" '"R-6-f" "R-6-h"
' ' "R-6-k"' "R-
6-n"' "R-7-f"' "R-7-h" ' "R-7-k" ' "R-7-m"' "R-7-o"' "R-7-r"' "R-7-a"' "R-
7-d"' "R-7-i"' "R-7-p"' "R-7-s"' "R-7-b" ' "R-7-e" ' "R-7-g"' "R-7-J'" ' "R-
' "R-8-a".
7-1", ' "R-7-n",' "R-7-q",' "R-7-t",' "R-8", and ' Petitioner
' ' its
filed
Comment (To the Respondent's Formal Offer of Evidence) 33 on
September 18, 2017.
In the Resolution 34 dated December 18, 2017, the Court

admitted all of respondent's formally offered evidence, but denied the
admission of Exhibits "R-1", "R-1-a", "R-1-b", "R-1-c", "R-2", "R-2-a",
"R-3", "R-3-a", "R-4", and "R-4-a".
The admitted documentary exhibits of the respondent are as

follows:
Exhibit: Description:
R-5, R-5-a and Memorandum Report
R-5-b
R-5-c Name and signature of Jasmine Joy B. Oasay
R-5-d Name and Signature of Cherry Flor C. Dela Cruz
R-6, R-6-b, Preliminary Assessment Notice (Part I) dated April 29,
R-6-e, R-6-g and 2014 with Details of Discrepancies
R-6-i
R-6-1 Preliminary Assessment Notice (Part II) dated April
29,2014
R-6-c and R-6-j Name and signature of Nestor S. Valeroso
R-6-m Name and signature of Nestor S. Valeroso
R-6-a, R-6-d, R- Stamp Receipt bearing the name and signature of
6-f R-6-h R-6-k petitioner's employee/receptionist, Mhe-Ann Alberto
' '
and dated April 29, 2014
R-6-n
R-7-f R-7-h R- Formal Assessment Notice (Part I) dated May 21,
' '
7-k R-7-m R-7- 2014 with Details of Discrepancies
' '
0
R-7-r Formal Assessment Notice (Part II) dated May 21,
2014

t.
DECISION
R-7-a R-7-d R- Name and signature of Nestor S. Valeroso

' '
7-1, R-7-p and R-
7-s
R-7-b, R-7-e, R- Stamp Receipt bearing the name and signature of
7-g R-7-j R-7-1 petitioner's employee/Executive Secretary, Rachel
' ' '
R-7-n, R-7-q and Anne Pen, dated May 22, 2014
R-7-t
R-8 Judicial Affidavit of Revenue Officer Jasmine Joy
Oasay
R-8-a Name and signature of Jasmine Joy Oasay
The Court declared the case submitted for decision on March 14,
2018, considering the Memorandum for the Petitioner36 filed on
35
February 26, 2018 and respondent's Memorandum 37 filed through

registered mail on February 23, 2018 and received by the Court on
March 5, 2018.
The parties submitted the following issue for the Court's

resolution :38
"Whether or not Petitioner is liable for deficiency

Value-Added Tax in the aggregate amount of
P34,402,825.83, inclusive of surcharge and interest for the
Taxable Period of January 1 to June 30, 2012."
Before addressing the stipulated issue, the Court shall first

determine the timeliness of the filing of the Petition for Review.
Pertinent to the resolution of this matter is Section 228 of the

NIRC of 1997, as amended, which states:
"SEC. 228. Protesting of Assessment - When the

Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the
taxpayer of his findings: Provided, however, That a
preassessment notice shall not be required in the following
cases:
XXX XXX XXX
35
Resolution dated March 14, 2018, Docket, val. II, p. 970.
36
37
38 Docket, val. I, p. 492.
{_
DECISION
The taxpayers shall be informed in writing of the law and

the facts on which the assessment is made; otherwise, the
assessment shall be void.
Within a period to be prescribed by implementing rules

and regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the Commissioner
or his duly authorized representative shall issue an assessment
based on his findings.
Such assessment may be protested administratively by

filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form
and manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest,
all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted

upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the said decision, or from the lapse
of the one hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and demandable."
Pursuant to Section 228 of the NIRC of 1997, petitioner has thirty

(30) days from receipt of the FAN within which to file its administrative
protest and another thirty (30) days from receipt of respondent's
decision, or in case of inaction, from the lapse of one hundred eighty
(180)-day period within which to file its Petition for Review with the
Court.
Petitioner received the FAN on May 21, 2014. It had thirty (30)
days from May 21, 2014 or until June 20, 2014 within which to file it
protest. Records show that petitioner filed its administrative protest
together with its supporting documents39 on May 29, 2014.
Respondent failed to act on petitioner's protest within 180 days

from the filing of protest and submission of documents. Counting 30
39
As culled from Exhibit "P-29", BIR Records, p. 1367.
l
DECISION
days from the lapse of the 180-day period on November 25, 2014,
petitioner had until December 25, 2014 within which to file its Petition
for Review. Hence, the Petition for Review filed by petitioner on
December 23, 2014 was clearly within the 30-day prescriptive period.
The Court shall now resolve the stipulated issue.
I. DEFICIENCY VAT- P34,402,825.83
Respondent computed the subject deficiency VAT assessment as

follows: 40
VATable Sales per VAT returns p 368 297 808.49 :

Add: Undeclared Sales (Schedule 1) p 1,536 917.50
Undeclared Sales based on
Benchmark (Schedule 2) 75 332 536.46
Undeclared Sales from Unaccounted
Purchases (Schedule 3) 42 503.07
Unexplained Debits to Sales 47 769 106.50 124 681,063.53
Gross Receipts subject to VAT p 492 978,872.02
Output tax due p 59,157,464.64

Less: Input tax from Current Purchases p 41 745,615.38
Less: Unsupported Input Tax
(Schedule 4) 3,308,360.22 38,437 255.16
VAT Payable p 20 720 209.48
Less: Payments Made 2 450 121.56
Basic tax due p 18 270 087.92
Add: Surcharge 50% p 9,135 043.96
Interest (07.26.12 to 06.25.14) 6 997 693.95 16 132,737.91
Total Amount Due ...... '! --~~~402L~2~.~3
In order to determine whether or not the assessment is correct,

the Court shall look into the propriety of each of the following items:
A. Undeclared Sales p 1,536,917.50

B. Undeclared Sales based on Benchmark 75,332,536.46
C. Undeclared Sales from Unaccounted
Purchases 42,503.07
D. Unexplained Debits to Sales 47,769,106.50
40
Exhibit "P-1", BIR Records, p. 1094.
t-
DECISION
E. Unsupported Input Tax 3,308,360.22

F. 50°/o Surcharge P 9,135,043.96
A. Undeclared Sales- 1#1,536,917.50
Respondent's comparison of sales declared in petitioner's VAT

return and third-party information (TPI) disclosed a discrepancy of
P1,536,917.50. Hence, respondent assessed petitioner of the
corresponding deficiency VAT pursuant to Section 106 of the NIRC of
1997, as amended, which states: "There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to ten percent (10°/o) of the gross selling
price or gross value in money of the goods or properties sold, bartered
or exchanged."
Schedule 1 of the Details of Discrepancies41 attached to the FAN

breaks down the following alleged undeclared sales of petitioner:
SALES
Customer PerTPI Per SLS Undeclared
AGOT VICENTE A p 12 053.57 - p 12 053.57
AK AND KJ HOLDING CORPORATION 34 750.00 - 34 750.00
AMPAYON AGRO INDUSTRIAL
CORPORATION 25 938.22 - 25 938.22
ANTIPASADO ANGELA MINOSA 74 238.40 - 74 238.40
BONNE BUSINESS CORPORATION 8 571.43 - 8 571.43
BUTUAN DOCTORS HOSPITAL AND
COLLEGE INC. 1 082.21 - 1 082.21
CASINO JIMMY HUBAHIB 653.57 - 653.57
CENTRO SUPERSALES INCORPORATED 19 953.38 - 19 953.38
CHIKARA REALTY INC 2 142.86 - 2 142.86
DDD HABITAT INC 9 698.21 - 9 698.21
ELIOT LOURDES TULDANES 5 343.75 - 5 343.75
ESTATE OF TERESITA B BUREROS 52 561.16 - 52 561.16
GAW WILSON C 593 000.53 285 975.00 307 025.53
LT. SONS INCORPORATED 38 792.29 - 38 792.29
LIM JENNIFER LAGUA 2 446.43 - 2 446.43
LIM WILLY SIAO 6 385.71 - 6 385.71
LIMBROS ENTERPRISES INC - - -
OPITZ HOTELS AND RESTAURANTS
OPERATOR DEVT CORP 37 500.00 - 37 500.00
PACANAN KIRBY ROMMEL LANUTAN 137 833.04 - 137 833.04
PILIPINAS VER-TEX CORPORATION 19 788.84 8 312.50 11476.34
SAJULGA GLORIO DAGACDAC 1 866.07 - 1866.07
SOLOMON JUAN J 314,803.57 301,516.07 13,287.50
41
l
DECISION
SANTIAGO JUANITA J 6 964.29 - 6,964.29

TAIPAN DEVELOPMENT INC 125 303.21 33 640.00 91,663.21
TANDUAY DISTILLERS INC 244 535.71 - 244,535.71
WING-ON INC 2 286 051.76 1 895 897.14 390,154.62
Total P4,062,258.21 P2,525,340.71 P1,536 917.50
Note:
Subject taxpayer prepared a schedule of sales containing trade names used when posting transaction
with said customers. Said names were then verified and matched with [BIR's] ITS and was then
considered in the above schedule to compute for the [undeclared sales].
Petitioner contends that respondent's findings lack factual basis.

Based on its own review of its January 1 to June 30, 2012 sales
transactions per customer as reported in the Summary List of Sales
(SLS), petitioner found the following explanations:
( 1) Discrepancies in the reporting of business or

trade name (Inconsistent reporting of Name) - petitioner
submits that it has a database of customers based on
represented business names which petitioner used when
issuing invoices. On the other hand, it is very likely that the
customers use trade names for their business which are
not necessarily their own names.
(2) Some customers did not provide their Tax

Identification Number {TIN) (Inconsistent or wrong
reporting of TIN)- petitioner claims that some of their
customers did not provide TIN numbers. On other
occasions, the TIN provided by the customer is wrong.
Petitioner submits that it does not have the means to check
the accuracy of the supplied data, and instead relied on, as
a matter of mutual business trust, what its customers
provide is true and correct information of their business.
(3) Third parties, who possibly are not purchasers,

may have indicated petitioner's TIN when submitting their
SLPs to respondent.
Moreover, petitioner points out that based on the table below,

the amounts of sales reported in the SLS for the noted customers were
much higher than the amounts of sales noted in the TPI records which
allegedly proves that it properly reported its sales for VAT purposes
and that the differences noted by respondent can be explained.
L.
DECISION
Per Review of
Customer PerTPI PerSLS Undeclared Difference
NM/SLS
AGOT VICENTE A p 12,053.57 - p 12,053.57 p 91,209.82 (P 79,156.25)

CENTRO SUPERSALES
INCORPORATED
19,953.38 - 19,953.38 42,964.29 (23,010.91)
GAW WILSON C 593,000.53 285,975.00 307,025.53 1,199,099.48 (892,073.95)

L.T. SONS
INCORPORATED
38,792.29 - 38,792.29 105,963.57 (67,171.28)
LIM JENNIFER LAGUA 2,446.43 - 2,446.43 31,153.57 (28,707.14)

PILIPINAS VER-TEX
19,788.84 8,312.50 11,476.34 12,857.14 (1,380.80)
CORPORATION
SOLOMON JUAN J 314,803.57 301,516.07 13,287.50 759,678.57 (746,391.07)
TAIPAN
125,303.21 33,640.00 91,663.21 185,796.07 (94,132.86)
DEVELOPMENT INC
Total P1,126,141.82 P629,443.57 P496,698.25 P2,428,722.51 (P1,932,024.26)
Further, petitioner states that due to the unverifiable nature of

the deficiency assessment, founded on unsupported third-party
information, the situation hardly gives petitioner a chance to refute the
assessment, hence, an abject denial of due process.
Citing the case of Keansburg Marketing Corporation vs.

Commissioner of Internal Revenu£! 2, petitioner asserts that any
assessment arising from comparison of taxpayer's data with TPI, which
is not accompanied by third-party certifications as to the amounts per
TPI, should be void pursuant to Section 228 of the NIRC of 1997, as
amended.
The Court agrees with petitioner.
A perusal of the records reveals that while respondent used the

VAT Relief System to match the TPI with petitioner's SLS, however,
respondent failed to verify the amounts per TPI with the relevant
customers. Without the confirmation from third parties, the finding
casts doubts as to the reliability and correctness of the assessment on
the alleged undeclared sales.
While it is true that tax assessments have the presumption of

correctness and regularity in its favor, it is also equally true that
assessments should not be based on mere presumptions no matter
4
2 CTA Case No. 9076, January 5, 2018.
t-
DECISION
how reasonable or logical the presumption might be. 43 This was

highlighted in the case of Commissioner of Internal Revenue vs.
Hantex Trading Co., Inc. 44, the pertinent portions of which are quoted
as follows:
"We agree with the contention of the petitioner that, as

a general rule, tax assessments by tax examiners are presumed
correct and made in good faith. All presumptions are in favor
of the correctness of a tax assessment. It is to be presumed,
however, that such assessment was based on sufficient
evidence. Upon the introduction of the assessment in evidence,
a prima facie case of liability on the part of the taxpayer is
made. If a taxpayer files a petition for review in the CTA and
assails the assessment, the prima facie presumption is that the
assessment made by the BIR is correct, and that in preparing
the same, the BIR personnel regularly performed their duties.
This rule for tax initiated suits is premised on several factors
other than the normal evidentiary rule imposing proof
obligation on the petitioner-taxpayer: the presumption of
administrative regularity; the likelihood that the taxpayer will
have access to the relevant information; and the desirability of
bolstering the record-keeping requirements of the NIRC.
However, the prima facie correctness of a tax assessment

does not apply upon proof that an assessment is utterly without
foundation, meaning it is arbitrary and capricious. Where the
BIR has come out with a 'naked assessment,' i.e., without any
foundation character, the determination of the tax due is
without rational basis. In such a situation, the U.S. Court of
Appeals ruled that the determination of the Commissioner
contained in a deficiency notice disappears. Hence, the
determination by the CTA must rest on all the evidence
introduced and its ultimate determination must find support in
credible evidence."
Accordingly, the assessment cannot be sustained since it was

based merely on unverified amounts extracted from respondent's own
database.
Note that Revenue Memorandum Order (RMO) No. 04-03

requires the verification of the amounts reflected in the quarterly
43
Commissioner of Internal Revenue vs. Fax N Parcel, Incorporated, CTA EB No. 883, February
14, 2013.
44 G.R. No. 136975, March 31, 2005.
l
DECISION
report with other externally sourced data in ascertaining the taxpayer's

under-declaration of revenues or overstatement of costs and
expenses, if any. The applicable portions of RMO No. 04-03 state as
follows:
"The Bureau of Internal Revenue is reengineering its

work processes in order to increase revenue collections and to
pursue quality audit by making use of available internal and
external information resources. In order to strengthen and
enhance its assessment functions, the utilization of information
technology has been identified as an effective tool to improve
tax administration through the development of the
Reconciliation of Listings for Enforcement (RELIEF) System.
The RELIEF System was created to support third party

information program and voluntary assessment program of the
Bureau through the cross-referencing of third party information
from the taxpayers' Summary Lists of Sales and Purchases
prescribed to be submitted on a quarterly basis pursuant to
Revenue Regulations Nos. 7-95, as amended by RR 13-97, RR
7-99 and RR 8-2002.
The RELIEF System shall cover all VAT taxpayers above

threshold limits set by RR 8-2002 to submit Summary Lists of
Sales and Purchases in magnetic form based on a prescribed
electronic format. The consolidation and matching of
information with other externally sourced data will detect
underdeclaration of revenues/overdeclaration of cost and
expenses, thus resulting to greater tax potential." (Emphasis
supplied)
Instead of exerting his best effort in gathering information from

other sources to verify the alleged sales discrepancy, respondent
chose to resort to presumptions and heavily relied on the results of
the unverified third-party information in determining petitioner's
deficiency VAT liability. Thus, respondent's assessment on the alleged
undeclared sales of P1,536,917.50 shall be cancelled for lack of
factual and legal bases.
B. Undeclared Sales based on Benchmark (Schedule 2) -

P75,332,536.46
fr.
DECISION
Based on the Details of Discrepancies, respondent explains that

since there is no means by which the correctness and accuracy of
petitioner's receipts can be ascertained, assessment based on estimate
was used pursuant to Section 2.4(a) of RMC No. 23-2000 which states
that "In the absence of proof of any irregularities in the performance
of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful where
it does not appear to have been arrived at arbitrarily or capriciously.
The burden of proof is upon the complaining party to show clearly that
the assessment is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said assessment."45
Respondent's comparison of petitioner's gross sales based on

industry benchmark rate, pursuant to RMO No. 05-2012, against the
gross sales reported per VAT Returns disclosed that petitioner failed
to pay the corresponding VAT on the portion of its gross receipts as
shown below:
Benchmark VAT Rate for Other Wholesaling 2.59%

Computed% of Input VAT against Output VAT (1 -Benchmark Rate) 97.41%
Actual Input VAT Claimed for the First 2 Quarters of 2012 p 41,745,615.76
Divided by Percentage of Input over Output VAT 97.41%
Computed Output VAT based on Benchmark Rate p 42,855,575.16
Computed VATable Receipts based on Benchmark Rate p 443,630,344.95

Less: Total VATable Receipts per VAT Returns 368,297,808.49
Sales Receipts not subjected to VAT P75,332,536.46
Benchmark Sales/Receipts = Current Input Tax Claimed

VAT Rate- Benchmark VAT Rate
GIVEN:
Current Input VAT Claimed for the First 2 Quarter of
2012 = 41,745,615.46
Benchmark VAT Rate for Other Wholesaling = 2.59%
Benchmark Sales/Receipts = 41,745,615.46

12%- 2.59%

9.41%
45
A.,
DECISION
Petitioner disagrees with the computation of the assessed

deficiency VAT based on benchmark formula applied by respondent,
claiming that its sales were properly reported in its ITR and VAT
returns for the covered period. The details of its sales for the taxable
period under audit were submitted to respondent via its SLS. As stated
in its administrative protest, (1) the formula used by respondent
assumed that all purchases inventory in the first semester of 2012
were sold in the same period, however, petitioner alleges that in
reality, the said inventory came from its previous year's inventory and
during the quarter purchases; and (2) petitioner raises the issue on
the validity of the benchmarking computation done by respondent
premised on a) how the benchmark VAT rate of 2.59°/o was derived,
b) inconsistencies of the use of the said benchmark VAT rate, c)
assessment must not be based on estimates and mere presumptions,
and d) other than mere extrapolations, respondent did not present any
concrete and sufficient documentary evidence to prove his allegation
that indeed petitioner is liable to pay VAT.
Petitioner submits that the purpose of "benchmarking" is clear

under RMO No. 04-06- monitoring and evaluation of tax payments
through the use of performance benchmarking will determine/identify
taxpayer within industry groups who are paying below the minimum
amount or set benchmarks for tax compliance purposes and it was
issued (1) To enhance taxpayer's compliance with regard to Income
Tax Due and Net VAT Due of taxpayers engaged in the same line of
industry; (2) To prescribe policies, guideline and procedures in
accordance with Sections S(E) and 6(C) of the NIRC; and (3) To
effectively monitor the accomplishments of the Regional and Revenue
District Offices regarding benchmarking activities.
Petitioner further explains that "benchmarking method" is a

strategy adopted by the BIR as a means of monitoring tax payments
for the purpose of increasing tax collection. The intention is to conduct
taxpayer profiling and benchmarking activities that will serve as an
effective tool in addressing tax collection problems plugging tax
leakages and implementing a risk-to-revenue based audit and
enforcement activities.
Furthermore, petitioner cited the case of Wei/form Trading

Corporation vs. Commissioner of Internal Revenu£! 6 , where
46
erA Case No. 9086, November 27, 2017.
t
DECISION
benchmarking method was used by respondent in the imposition of

deficiency VAT and the Court held that the use of the benchmark rate
in making an assessment of petitioner's alleged tax deficiency has no
support in law, to wit:
"A perusal of the foregoing shows that the purpose of

the benchmarking program and of deriving the benchmarking
rate is mainly to establish measurement or a set of standards
to be used to measure and monitor the
performance/compliance of taxpayers in a particular industry
and improve voluntary tax compliance. There is nothing in the
foregoing which would show that the benchmark rate should
be used in computing the tax liability of the taxpayer.
At best, the benchmarking program may be used in

recommending enforcement actions such as immediate
issuance of Letter of Authority, if none has been issued yet,
conduct of Post Evaluation on CRM/POS Machines, placing
establishment under surveillance, or conduct of inventory stock
taking. Moreover, it is important to stress that while the
enforcement actions, such as the conduct of Oplan Kandado or
Inventory Stock Taking, as the case may be, will almost always
trigger the issuance of Letters of Authority, the same RMO
requires that the audit activities and the processes embodied
under Revenue Regulations No. 12-99 should still be complied
with in coming up with assessment notice.
Clearly, in this case, respondent should have assessed

petitioner based on its own investigation pursuant to the
electronic Letter of Authority (eLA) issued and in compliance
with Revenue Regulations No. 12-99, and not by merely using
the benchmark rate in arriving at the alleged computed
VATable sales of petitioner.
Thus, the use of the benchmark rate in computing

petitioner's tax liability has no legal basis."
The present case is no different from the aforecited Wei/form

case. Respondent computed the alleged undeclared sales of
P75,332,536.46 based on benchmark rate less total VATable sales per
VAT returns. Apparently, respondent made no determination of the
L
DECISION
actual VATable sales of petitioner since the benchmark rate used by

respondent pertains to the sales of other wholesaling companies as
reflected in the computation. There was also no indication as to how
the benchmark rate was derived by respondent or that it can at least
be used to approximate the actual VATable sales of petitioner.
Respondent merely assumed that the amount of VATable sales of
other wholesaling companies is the same with the VATable sales of
petitioner.
To reiterate, the prima facie correctness of a tax assessment

does not apply upon proof that an assessment is utterly without
foundation, meaning it is arbitrary and capricious. 47 In order to stand
the test of judicial scrutiny, the assessment must be based on actual
facts. The presumption of correctness of assessment being a mere
presumption cannot be made to rest on another presumption. 48
Hence, assessment should not be based on mere presumptions no
matter how reasonable or logical said presumptions may be.
Consequently, while there is a presumption of correctness of

assessment issued by respondent, being a mere presumption, the
same cannot be made to rest on another presumption, which is
respondent's presumption that the amount of VATable sales of other
wholesaling companies is the same with the VATable sales of
petitioner.
In fine, the Court cancels respondent's assessment of

P75,332,536.46 undeclared sales based on industry benchmark rate
for lack of merit.
C. Undeclared Sales from Unaccounted Purchases -

P42,503.07
Respondent's verification disclosed that purchases amounting to

P37,095.27 were not reported in the Summary List of Purchases (SLP)
submitted to the BIR as well as VAT returns, therefore said discrepancy
was grossed up by respondent using petitioner's gross profit rate of
14.58°/o (based on 2012 Financial Statements) to arrive at the alleged
47
Commissioner of Internal Revenue vs. Hantex Trading Co., Inc., G.R. No. 136975, March 31,
2005.
48
Commissioner ofInternal Revenue vs. Island Garment Manufacturing Corporation and the Court
ofTaxAppeals, G.R. No. L-46644, September 11, 1987.
t-
DECISION
undeclared sales of P42,503.07. The alleged undeclared sales amount

was assessed pursuant to Section 106 of the NIRC of 1997, as
amended.
Schedule 3 of the Details of Discrepancies shows respondent's

computation, to wit: 49
Purchases
PerTPI PerSLS Undeclared
ANGELES ELECTRIC CORPORATION 1 823.59 - 1 823.59
GRAND CAPRICE RESTAURANT INC 336.86 - 336.86
LAWRIAN PRESS CORPORATION 33 928.57 - 33 928.57
M MONTECLAROS ENTERPRISE INC 1 006.25 - 1 006.25
Total 37 095.27 - 37 095.27
Gross Profit Rate Available 114.58%
Undeclared Sales from Unaccounted
Purchases 42,503.76
Petitioner contradicts respondent's finding arguing that

respondent failed to obtain third-party certifications as to the amounts
per TPI; that respondent failed to consider its purchase from Lawrian
Press Corporation in February 2012 amounting to P33,928.57; and that
even if there were undeclared purchases, such do not necessarily
result in undeclared sales.
The Court cancels the assessment.
It must be remembered that under Section 106(A) of the NIRC

of 1997, as amended, VAT is imposed on the "gross selling price or
gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor".
Also, under Section 108 of the NIRC of 1997, as amended, VAT

is imposed on the "gross receipts derived from the sale or exchange
of services". Significantly, the law defines "gross receipts" as "the total
amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount
charged for materials supplied with the services and deposits and
advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for
another person, excluding value-added tax."
49
Exhibit "P-1 ", BIR Records, p. 1091.
t-
DECISION
Clearly, VAT can be imposed only when it is shown that the

taxpayer received an amount of money or its equivalent from its sale,
barter or exchange of goods or properties, or from sale or exchange
of services, and not when there are under-declared purchases.
D. Unexplained debits to Sales- f/#47,769,106.50
Respondent found that there were total debits to petitioner's

Sales amounting to P47,769,106.50 with no explanation as to the
nature of these debits and thus subjected the same to 12°/o VAT
pursuant to Section 106 of the NIRC of 1997, as amended. 5°
On the other hand, petitioner claims that as early as the filing of

its administrative protest, it explained that the alleged "Unexplained
Debits to Sales" amounting to P47,769,405.50 represents sales
discounts given to customers at the point of sales and reflected in the
invoices issued to customers. Allegedly, all the requisites on sales
(reduction) adjustments related to discount were fully met by
petitioner's documentation and recording processes and that petitioner
provided respondent with sample sales invoices to serve as reference.
Petitioner also explains that the sales discounts granted to its

customers are not reflected in the sales reported for VAT purposes
(per VAT Returns and SLS), instead it is reported net of discount
because the VAT Relief System does not provide for a column for
discounts/sales adjustments.
The Court partially upholds the assessment.
Under Section 106(D) of the NIRC of 1997, as amended, sales

discounts that are granted and indicated in the invoices at the time of
sale- and that do not depend upon the happening of any future event
- may be excluded from the gross sales within the same quarter they
were given, to wit:
"SEC. 106. Value-added Tax on Sale of Goods or

Properties. -
50
Exhibit 'P-1", BIR Records, p. 1091.
L
DECISION
XXX XXX XXX
(D) Sales Returns, Allowances and Sales Discounts. -The

value of goods or properties sold and subsequently returned or
for which allowances were granted by a VAT-registered person
may be deducted from the gross sales or receipts for the
quarter in which a refund is made or a credit memorandum or
refund is issued. Sales discount granted and indicated in
the invoice at the time of sale and the grant of which
does not depend upon the happening of a future event
may be excluded from the gross sales within the same
quarter it was given." (Emphasis supplied)
Clearly, a sales discount is allowed to be excluded from reporting

in the Sales/Receipts portion of the return, provided that the amount
is indicated in the sales invoice and does not depend upon the
happening of a future event.
Petitioner needs to prove that these debits to the Sales account

really are composed of sales discounts to customers. In its protest
letter51 dated May 28, 2014, petitioner showed how these debits to
Sales were recorded in its books for the period January to June 2015:
Sales per Ledger

Period DR (Discounts) CR (Gross Sales) Net Sales
Januarv p 8,439,204.77 p 67,462,002.68 p 59,022,797.91
February 7,080,375.10 54,420,567.86 47,340,192.76
March 7,052,387.03 69,650,058.88 62,597_L671.85
April 7,550,205.24 72 705,145.56 65,154,940.32
May 9,081,342.91 82 211,913.71 73,130,570.80
June 8,565,591.45 69,617,226.30 61,051,634.85
TOTAL P47,769t106.50 P416,066l914.99 P368,297~08.49
L
Moreover, petitioner submitted its Schedules of Sales for the

months of January to June 2012 with the related sales invoices, which
were marked as Exhibits "P-34-A" to "P-34-D", "P-35-A" to "P-35-D",
"P-36-A" to "P-36-D", "P-37-A" to "P-37-D", "P-38-A" to "P-38-D", and
"P-39-A" to "P-39-D", with numerical series. Out of these pieces of
51 Exhibit "P-6", BIR Records, pp. 1357-1365.
(_
DECISION
evidence, the Court disallowed "P-38-B and numerical series" for not
being found in the records. 52
According to the report of the Court-commissioned ICPA, the net

sales in petitioner's VAT returns for the period January 2012 to June
2012 do not tie up with the supporting documents that were examined
due to the passing of time. Nevertheless, the ICPA verified a total of
P40,071,875.80 53 worth of sales discounts provided to merchants,
without VAT.
Upon examination of petitioner's supporting documents, the

Court finds the ICPA report to be correct and in order. The Court also
finds that petitioner recorded discounts as reflected in the sales
invoices, as net of VAT. However, considering that the assessed
amount of P47,769,106.50 is higher than the ICPA verified sales
discounts of P40,071,875.80, the unaccounted/unsupported difference
of P7,697,230.70 shall be upheld.
Moreover, as earlier mentioned, Exhibit "P-38-B and numerical

series" was denied admission by the Court for not having been found
in the records of the case. Exhibit "P-38-B and numerical series"
pertains.to sales invoices from Butuan Branch for the month of May
2012. The sales discounts represented by these sales invoices from
the said denied exhibits sum up to the amount of P3,317,286.47, which
should also be assessed of corresponding deficiency VAT.
In fine, the Court upholds the assessment for unexplained debits

to sales in the total amount of P11,014,517.17 (P7,697,230.70 +
P3,317,286.47).
E. Unsupported Input Tax- P3,308,360.14
Respondent disallowed petitioner's claimed input taxes in the

amount of P3,308,360.14 for the latter's alleged failure to submit the
required VAT invoices or official receipts pursuant to Section 110(A)(1)
of the NIRC of 1997, as amended, which provides that: "Any input tax
evidenced by a VAT invoice or official receipt issued in accordance with
Section 113 ... shall be creditable against the output tax."
52
Resolution on the Formal Evidence for the Petitioner, Docket, vol. II, p. 860.
53 Exhibit "P-32-b", Docket, vol. II, p. 802.
(
DECISION
Schedule 4 of the Details of Discrepancies shows the

computation of the disallowed input taxes of P3,308,360.14 as follows:
Unsupported Input Tax

Total Input Tax claimed Qer Return p 41 745,615.38
Less: Adjustments (Supported)
Asia Brewery P15,876,134.22
Interbev P22,561,121.02 38,437,255.24
Total P3,308,360.14
On the other hand, petitioner accounted for the alleged

unsupported input tax, as follows:
Summary List of Purchases - Others

Purchases of Purchases of
Period Purchases Total Services Goods Input Taxes
January p 4,485 136.10 p 2,705,976.46 p 1_17791159.64 p 538,216.33
February 4,579,613.16 3,107 903.38 1 471,709.78 549,553.58
March 4,020,527.80 3,126 218.01 894,309.79 482,463.34
April 5,111,458.57 3,354,670.39 1,756,788.18 613,375.03
May 5,760,049.33 2,886 954.82 2,873,094.51 691,205.92
June 3,612,886.11 2,693 087.84 919,798.27 433,546.33
Total P27,569,671.07 P17,874,810.90 P9,694,860.17 P3,308,360.53
According to petitioner, the foregoing purchases pertain to

purchases that are not from their major suppliers, Asia Brewery and
Interbev.
To support these purchases, petitioner submitted Exhibits "P-40"

to "P-45", with sub-markings for the period from January 2012 to June
2012.
According to the !CPA, he was able to verify a total of

P17,966,995.20 supported purchases with equivalent input tax of
P1,925,035.20, and presented the same in the schedules attached to
the Amended !CPA Report. He then recommended that unsupported
input tax in the amount of P1,383,325.02 should be upheld by the
Court. 54
54
Exhibit "P-32", Docket, val. II, pp. 655 and 661-677.
L
DECISION
It is worthy to note that Sections 110{A) and 113(A) and (B) of

the NIRC of 1997, as amended, and as implemented by Sections
4.110-1, 4.110-8 and 4.113-1(A) and (B) of Revenue Regulations (RR)
No. 16-2005, explicitly state that any input tax may be creditable
against the output tax provided that the same is supported by VAT
invoice (for purchases of goods) or VAT official receipts (for purchases
of services) containing the required information under the Tax Code,
to wit:
"SEC. 110. Tax Credits.-
(A) Creditable Input Tax. -
(1) Any input tax evidenced by a VAT invoice or

official receipt issued in accordance with Section 113
hereof on the following transactions shall be creditable
against the output tax:"
"SEC. 113. Invoicing and Accounting Requirements for

VAT-Registered Persons. -
(A) Invoicing Requirements. -A VAT-registered person

shall issue:
(1) A VAT invoice for every sale, barter or

exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods

or properties, and for every sale, barter or exchange of
services.
(B) Information Contained in the VAT Invoice or VAT

Official Receipt - The following information shall be
indicated in the VAT invoice or VAT official receipt:
XXX XXX XXX
L
DECISION
(2) The total amount which the purchaser pays or is

obligated to pay to the seller with the indication that such
amount includes the value-added tax: Provided, That:
(a) The amount of the tax shall be shown as a separate
item in the invoice or receipt;
XXX XXX XXX
(3) The date of transaction, quantity, unit cost and

description of the goods or properties or nature of the service;
and
(4) In the case of sales in the amount of One thousand

pesos (Pl,OOO) or more where the sale or transfer is made to
a VAT-registered person, the name, business style, if any,
address and Taxpayer Identification Number (TIN) of the
purchaser, customer or client." (Emphases supplied)
Upon verification of petitioner's supporting documents, the Court

finds that aside from the ICPA recommended input VAT disallowance
of P1,383,325.02, the amount of P1,742,637.93, detailed below,
should be disallowed for failure to meet the substantiation
requirements under the afore-mentioned VAT law and regulations:
Voucher Purchases
Supplier No. (Net of VAT) Input VAT
!
Period: January 2012 (Exhibit P-40)
Domestic purchases of services

supported by VAT OR but the
amount of VAT was not separately
shown and/or without petitioner's
address and TIN and/or with
incomplete petitioner's name
and/or address
Lorenzo Shipping Corporation 01-12-0002 p 206 896.80 p 24 827.62
Lorenzo Shippinq Corporation 01-12-0003 49 019.54 5,882.34
Lorenzo Shipping Corporation 01-12-0004 133,367.50 16,004.10
Lorenzo Shipping Corporation 01-12-0029 114 315.00 13 717.80
Lorenzo Shipping Corporation 01-12-0052 38,105.00 4 572.60
T. Biraoqo Truckinq Services Inc. 01-12-0006 75 399.74 9 047.97
Royal Master Services Inc. 01-12-0014 53 769.32 6 452.32
T. Biraogo Trucking Services, Inc. 01-12-0018 1JJJ_L:~_Q!.92 14 196.23
{_
DECISION
Topkick Movers Corporation 01-12-0007 148,117.50 17,774.10

Dennis Trucking Services 01-12-0013 95,448.21 11 453.79
Topkick Movers Corporation 01-12-0023 28,694.64 3 443.36
Aboitiz Transport System Corporation 01-12-0026 26,353.75 3 162.45
Royal Master Services Inc. 01-12-0051 35,846.23 4 301.55
Dennis Trucking Services 01-12-0035 119 951.75 14 394.21
Aboitiz Transport System Corporation 01-12-0027 381477.93 45 777.35
without supporting VAT OR
P.N.A. Freight Services 01-12-0015 59 575.09 7 149.01
.N.A. Freight Services 01-12-0016 28 805.95 3 456.71
P.N.A. Freight Services 01-12-0017 47 660.07 5 719.21
Friends Trucking 01-12-0019 15 946.43 1 913.57
Gcr and Sons Agricultural Devt Corp 01-12-0011 32 979.31 3 957.52
Gcr and Sons Agricultural Devt Corp 01-12-0028 8 770.54 1,052.46
GCT and Sons Agricultural Devt Corp 01-12-0034 18 529.46 2,223.54
Topkick Movers Corporation 01-12-0024 193 063.50 23 167.62
supported by VAT OR issued under
the name of "Northern Mindanao
Marketing Corp"
F.A. Freight Serilices 01-12-0032 12,016.20 1 441.94
Subtotai-Ja•1uary 2012 p 2,383,788.37 p 286,054.60
Period: February 2012 (Exhibit P-

41)

and/or address
T. Biraogo Trucking Services, Inc. 02-12-0002 p 36 451.79 p 4 374.21
T. Biraogo Trucking Services Inc. 02-12-0003 58 996.43 7 079.57
T. Biraogo Trucking Services Inc. 02-12-0025 211,991.96 25,439.04
Coren Commercial Co. Inc. 02-12-0027 84 821.43 10,178.57
Topkick Movers Corporation 02-12-0004 194,648.35 23,357.80
Royal Master Services Inc. 02-12-0010 113,243.26 13,589.19
Royal Master Services Inc. 02-12-0011 166,810.25 20,017.23
Topkick Movers Corporation 02-12-0039 168 547.50 20L225.70
Dennis Truck: 1g Services 02-12-0033 58 996.43 7 079.57
f_
DECISION
YM Cargo Transport Corp 02-12-0024 28,397.14 3 407.66

ATS Consolidated, Inc. 02-12-0009 210,830.00 25 299.60
ATS Consolidated Inc. 02-12-0046 316 245.00 37 949.40
Friend's Trucking 02-12-0020 61 522.78 7 382.73
Friend's Trucking 02-12-0021 25 144.40 3 017.33
P.N.A. Freight Services 02-12-0026 11 915.02 1429.80
GCf and Sons Agricultural Devt Corp 02-12-0030 27 286.61 3 274.39
Gcr and Sons Agricultural Devt Corp 02-12-0031 3 126.81 375.22
Lawrian Press Corporation 02-12-0014 33 928.57 4 071.43
GCf and Sons Agricultural Devt Corp 02-12-0032 27 286.61 3 274.39
Square One Realty Corporation 1 375.00 165.00
Kheri Lines Inc 10 218.31 1 226.20
supported by VAT OR issued under
the name of "Northern Mindanao
Marketing Corp."
F.A. Freight Sevices 02-12-0045 107 151.29 12 858.15
Subtotal-February 2012 p 2,598,668.19 p 311,840.17
Period: March 2012 (Exhibit P-42)

Dennis Trucking Services p 58,996.43 p 7 079.57
Square One Realty Corporation 1,375.00 165.00
GCf and Sons and Agricultural Devp
Corp 03-12-0005 58,531.91 7 023.83
GCf and Sons and Agricultural Devp
Corp 03-12-0007 5 211.37 625.36
Friends Trucking 03-12-0018 29,393.30 3 527.20
Friends Trucking 03-12-0019 9 775.07 1173.01
Actuarial Advisers Inc. 03-12-0047 4 500.00 540.00
incomplete ?ame and/or address of
petitioner
Rqyal Master Services, Inc. 03-12-0012 65 684.37 7,882.12
P.N.A. Freight Services 03-12-0021 29 838.13 3,580.58
T. Biraogo Trucking Services, Inc. 03-12-0036 58,996.43 7,079.57
L
DECISION

Ocean Transport Group of Companies,
Inc. 03-12-0045 455 357.14 54 642.86
Inc. 03-12-0046 452 678.57 54 321.43
I Topkick Movers Corporation 03-12-0022 148 117.50 17 774.10
To_pkick Movers Corporation 03-12-0040 143 010.00 17 161.20
Dennis Trucking Services 03-12-0006 83_,_062.84 9 967.54
YM Cargo Transport Corp. 03-12-0039 11 915.02 1429.80
1
Lorenzo Shipping Corporation 03-12-0027 73 529.30 8,823.52
Subtotal-March 2012 p 11885,464.37 p 226,255.74
Period: April 2012 {Exhibit P-43)

address and/or TIN and/or with
and/or address
P.N.A.Freight Services 04-12-0007 p 1h915.02 p 1429.80
Coren Commercial Co. Inc. 04-12-0031 85 937.50 10 312.50
Royal Master Services, Inc. 04-12-0048 11915.02 1429.80
P.N.A.Freight Services 04-12-0051 11 915.02 1,429.80
Inc. 04-12-0052 104,464.29 12 535.71
LBC Ex_press Inc. 04-12-1010 1,616.07 193.93
Topkick l\1overs Corporation 04-12-0009 108,193.42 12 983.21
Inc. 04-12-0010 236 607.14 28 392.86
Dennis Truck':'lg Services 04-12-0019 96_,_969.97 11 636.40
Topkick Movers Corporation 04-12-0030 7 329.04 879.48
EDM Caltex Service Station 04-12-1011 2 876.79 345.21
EDM Caltex Service Station 04-12-1012 4 201.07 504.13
Laser Tech Copier Services (OR Nos
1106 & 27186) 04-12-1009 76.00 8.14
Leyson Printing_ and Services 04-12-1009 350.00 42.00
Laser Tech Copier Services 04-12-1011 75.00 9.00
Leyson Printing and Services 04-12-1012 312.50 37.50
Lore11zo Shipping Corporation 04-12-0029 100,279.07 12,033.49
c..
DECISION

Shacene Pension House Restaurant (OR
Nos. 9471 & 9436) 04-12-1012 4 241.07 508.93
without supporting VAT OR - I
Lorenzo Shipping Corporation 04-12-0013 24,509.77 2 941.17 I
GCT & Sons Agricultural Devt Corp 04-12-0014 28,720.67 3 446.48
GCT & Sons Agricultural Devt Coro 04-12-0015 29,865.88 3 583.90
GCT & Sons Agricultural Devt Corp 04-12-0016 18,529.46 2 223.54
Value Care Health Systems Inc. 04-12-0025 1 746.58 209.59
GCT & Sons Agricultural Devt Corp 04-12-0041 18.529.46 2 223.54
GCT & Sons Agricultural Devt Corp 04-12-0042 3 102.59 372.31
GCT & Sons Agricultural Devt Corp 04-12-0043 25 721.50 3 086.58
GCT & Sons Agricultural Devt Corp 04-12-0044 74 506.25 8 940.75
Shacene Pension House Restaurant (OR
Nos. 9463 & 9437) 04-12-1012 2 547.64 305.72
Smart Broadband Inc - Butuan 04-12-1012 8 203.20 984.38
Square One Realty Corporation 04-12-0021 1 375.00 165.00
Domestic purchases of goods
without supporting VAT sales
invoice -
Tandag Auto Parts and Brake Bonding

Center 04-12-1012 254.47 30.53
JSL Petron Service Station 04-12-1009 4,196.75 503.61
Lavender Shell Service Station (Inv.
188180) 04-12-1012 651.79 78.21
Metro Surigao Shopping Center 04-12-1012 212.68 25.52
Tandag Auto Parts and Brake Bonding
Center 04-12-1009 486.61 58.39
Tandag Petron Service Station 04-12-1010 2 062.50 247.50
Detan Shell Service Station 04-12-1012 2 519.81 302.38
supported by VAT OR issued not
under the name ofpetitioner
Surigao Del Norte Electric Cooperative,
Inc. 04-12-1009 3 703.58 444.43
supported by VAT sales invoice
issued not under the name of
_2etitioner
Pilipinas Shell Petroleum Corporation 04-12-1024 25,215.28 3 025.83
Pilipinas Shell Petroleum Corporation 04-12-1033 27,618.45 3,314.21
supported by VAT sales invoices but
wfthoutpeaaoner~addressandT.lN
Diatagon Caltex Filling Station 04-12-1009 4 220.45 506.45
Tandag Petron Service Station 04-12-1011 2 287.50 274.50
Diatagon Caltex Filling Station 04-12-1012 4.371.45 524.57
C-
DECISION
Input VAT claim does not tie-up with

the amount shown in the supporting
VAT sales invoice
PiliQinas Shell Petroleum Corp.
Amount per Claim 04-12-1013 148/345.86 17/801.48
Amount per Invoice No. 366790 (22,415.71) (2 689.88)
Amount per Claim 04-12-1031 254 480.41 30 537.65
Amount per Inv. No. 369923 (38 799.32) (4 655.94)
Amount per Claim 04-12-1032 36 802.31 4 416.28
Amount per Inv. No. 369923 (11 825.16) (1 419.02)
Amount per Claim 04-12-1034 231 876.21 27 825.14
Amount per Inv. No. 373012 (37 991.98) (4 559.05)
Amount per Claim 04-12-1035 44 173.65 5 300.84
Amount per Inv. No. 373012 (13 102.32) (1 572.28)
Subtotal-April 2012 p 2,586,198.65 p 310,342.75
Period: May 2012 (Exhibit P-44)

address and/or TIN and/or with
incomplete name and/or address of
_p_etitioner
Laser Tech Copier Services 05-12-1005 p 143.75 p 17.25
Leyson Printing and Services 05-12-1005 2 410.71 289.29
Lavender Shell Service Station 05-12-1005 3 839.28 460.72
Laser Tech Copier Services (OR No.
28692) 05-12-1052 8.93 1.07
Shacene Pension House Restaurant 05-12-1052 4 241.06 508.94
Smart Broadband Inc. 05-12-1052 12/455.40 1494.65
Sayan Telecommunications Inc. 05-12-1055 16 254.11 1 950.49
JRS Express 05-12-1055 3 131.25 375.75
Smart Broadband Inc. 05-12-1057 474.20 56.90
Commando Security Service Agency 05-12-1057 562.50 67.50
Topkick Move:rs Corporation 05-12-0009 78 623.32 9/434.80
Rqyal Master Services 1 Inc. 05-12-0010 51 704.96 6 204.60
Royal Master Services/ Inc. 05-12-0011 59 777.45 7,173.29
Topkick Movers Corporation 05-12-0012 117,472.50 14/096.70
Topkick Movers Corporation 05-12-0026 211/705.88 25,404.70
Topkick Movers Corporation 05-12-0031 112 686.61 13/522.39
To_Qkick Movers Corporation 05-12-0032 178 762.50 21 451.50
T. Biraogo Tro.!cking Services, Inc. 05-12-0016 101,288.72 12,154.65
l.
DECISION
P.N.A. Freight Services 05-12-0023 65.583.19 7 869.98

LBC Express, Inc. 05-12-1005 3 209.82 385.18
Domestic purchases of se!Vices
supported by VAT OR but issued not
Inc. 05-12-1005 3 628.67 435.44
Pilipinas Shell Petroleum Corp 05-12-1036 24 523.85 2 942.86
Inc. 05-12-1052 486.17 58.34
F.A. Freight Services 05-12-0014 45 696.87 5 483.62
F.A. Freight Services 05-12-0040 110 993.82 13 319.26
supported by VAT sales invoice but
the amount of VAT was not
separately shown and/or without
petitioner's address and/or TIN
EDM caltex Service Station (Inv. 45909) 05-12-1005 4,017.86 482.14
JSL Petron Service Station 05-12-1005 3 238.59 388.63
Diatagon Caltex Filling Station 05-12-1005 3,156.06 378.73
EDM Caltex Service Station (Inv. 45909) 05-12-1052 3 839.29 460.71
Searcher's Spareparts Specialist 05-12-1052 848.21 101.79
JSL Petron Service Station 05-12-1052 2 678.57 321.43
Kumander Enterprises 05-12-1055 89.29 10.71
Butuan Express Hardware Workshop Inc. 05-12-1057 775.00 93.00
invoice
EDM caltex Service Station 05-12-1005 357.14 42.86
Mercury DruCI Corporation 05-12-1057 736.92 88.43
Petron Corporation 05-12-1057 329 855.89 39 582.71
Palma Superstore 05-12-1007 2 097.99 251.76
A.Y. Butuan Auto Supply 05-12-1056 2 321.42 278.57
Life Auto Supply and Hardware 05-12-1056 2 017.85 242.14
Domestic purchases of seiVices
PHILCOM 05-12-1057 4,205.26 504.63
.
Agusan Del Norte Electric Cooperative 05-12-1057 4,628.42 555.41
Friends Trucking 05-12-0021 13,624.11 1634.89
Friends Trucking 05-12-0022 44,702.54 5,364.31
C-
DECISION

Square One RealtyCorporation 05-12-0004 1,375.00 165.00
Sign Head Graphics 05-12-1053 33 750.00 4,050.00
VAT sales invoice
Pilipinas Shell Petroleum Corp
Amount of claim 05-12-1048 289,076.94 34,689.23
Less: Amount per Inv. No. 376122 (32,396.69) (3 887.62)
Amount of claim 05-12-1049 32 960.12 3 955.22
Less: Amount per Inv. No. 376122 (17,490.35J (2 098.85)
With unreadable supporting
document
UN City Gen Mdse Inc. 05-12-1005 49.11 5.89
Subtotal-May 2012 p 3,057,212.79 p 366,865.51
Period: June 2012 (Exhibit P-45)

address and/or TIN andjor with
incomplete name and/or address of
petitioner
Royal Master Services Inc. 06-12-0003 p 23 830.04 p 2,859.60
Topkick Movers Corporation 06-12-0011 62 709.82 7,525.18
P.N.A. Freigh~ Services 06-12-0004 11,915.02 1429.80
Dennis Truckinq Services 06-12-0006 19 456.13 2,334.74
LBC Express t-ifin Inc 06-12-1044 2,950.89 354.11
Laser Tech Copier Services (OR 29183) 06-12-1044 17.86 2.14
St. Augustine Shell Service Center 06-12-1044 3,799.11 455.89
Laser Tech Copier Services 06-12-1045 78.57 9.43
Leyson Printing Services 06-12-1045 3 750.00 450.00
Lifeworks Print Hub 06-12-1049 61 794.64 7 415.36

supported by VAT sales invoice but
the amount of VAT was not
t-
DECISION
separately shown and/or without

petitioner's address and/or TIN
EDM Caltex Service station 06-12-1044 7,358.83 883.06

Searchers Spareparts Specialist 06-12-1045 178.57 21.43
EDM Caltex Service station 06-12-1045 5 899.93 707.99
Tandag Petron Service Station (Inv.
21906) 06-12-1045 2 487.77 298.53
Kumander Enterprises 466.07 55.93
Value Care Health Systems Inc. 06-12-0020 244.01 29.28
Square One Realty Corp 06-12-0026 1 375.00 165.00
Commando S~curity Service Agency 06-12-1044 375.00 45.00
supported by VAT sales invoice
issued not under the name of
petitioner
Pilipinas Shell Petroleum Corp 06-12-1043 42,989.96 5 158.79
supported by VAT OR issued not
Inc. 06-12-1045 3 737.42 448.49
VAT sales invoice
Pilipinas Shell Petroleum Corp -
Amount of Claim 06-12-1046 148,811.20 17,857.34
Less: Amount per Inv. 376079 (31 840.25) (3,820.83)
Amount of Claim 06-12-1051 277,745.69 33,329.48
Less: Amount per Inv. 379216 (37,798.16) (4 535.78)
invoice -
A&M Commercial and General Merch 06-12-1047 160.71 19.29
A.Y. Butuan Auto Supply 06-12-1047 107.14 12.86
Subtotal-June 2012 p 2,010,659.84 p 241,279.16
Total Disallowances - January to

June 2012_ _ _ _ _· · - - ~- __ ___ _ P ~521,992.21 ~1 742,637.93
Considering the foregoing, the Court upholds the disallowance

of the input tax of P3,125,962.95 (the sum of P1,383,325.02 and
P1,742,637. 93).
t-
DECISION
F. 50% Surcharge- P9,135,043.96
Petitioner assails respondent's imposition of fifty percent (50°/o)

surcharge upon its basic deficiency VAT due, which is the kind of
surcharge imposed under Section 248(8) of the NIRC of 1997, which
provides:
"(B) In case of willful neglect to file the return within the

period prescribed by this Code or by rules and regulations, or
in case a false or fraudulent return is willfully made, the penalty
to be imposed shall be fifty percent (50°/o) of the tax or of the
deficiency tax, in case any payment has been made on the
basis of such return before the discovery of the falsity or fraud:
Provided, That a substantial underdeclaration of taxable sales,
receipts, or income, or a substantial overstatement of
deduction, as determined by the Commissioner pursuant to the
rules and regulations to be promulgated by the Secretary of
Finance, shall constitute prima facie evidence of a false or
fraudulent return: Provided, further, That failure to report
sales, receipts or income in an amount exceeding thirty percent
(30°/o) of that declared per return, and a claim of deductions in
an amount exceeding thirty percent (30°/o) of actual
deductions, shall render the taxpayer liable for substantial
underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein."
According to petitioner, the prima facie evidence of a false return

by reason of the allegation that there was "failure to report receipt in
an amount exceeding thirty percent (30°/o) of that declared per
return'155 is not present in this case. The term "receipts" as defined
under Section 108 of the NIRC of 1997, as amended, pertains to "the
total amount of money or its equivalent" from sale of services whereas
petitioner is engaged in the "sale of goods". Further, the imposition
allegedly lacks factual and legal bases as petitioner truthfully reported
its sales in January to June 2012 and dutifully filed its VAT returns and
SLS.
Petitioner points out that in order to impose surcharge of such

rate of 50°/o, there must be a showing of "willful neglect to file the
return" on the part of petitioner. However, respondent failed to lay
t
DECISION
out the presence of circumstances to warrant the imposition of the

surcharge and as to why.
Petitioner cites the Supreme Court's ruling in the case of

Commissioner of Internal Revenue vs. Japan Airlines, Inc. and the
Court of Tax Appeal#6, to wit:
"Nowhere in the records of the case can be found that

JAL deliberately failed to file its income tax returns for the years
covered by the assessment. There was not even an attempt
by petitioner to prove the same or justify the imposition of the
50°/o surcharge. All that petitioner did was to cite the provision
of law upon which the surcharge was based without explaining
why it was applicable to respondent's case. Such cannot be
countenanced for mere allegations are definitely not
acceptable. The willful neglect to file the required tax return or
the fraudulent intent to evade the payment of taxes,
considering that the same is accompanied by legal
consequences, cannot be presumed (CIR v. Air India, supra).
The fraud contemplated by law is actual and constructive. It
must be intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to induce another to
give up some legal right. Negligence, whether slight or gross,
is not equivalent to the fraud with intent to evade the tax
contemplated by the law. It must amount to intentional
wrongdoing with the sole object of evading the tax (Aznar v.
Court of Tax Appeals, G.R. No. L-20569, August 23, 1974, 58
SCRA 519). This was not proven to be so in the case of JAL as
it believed in good faith that it need not file the tax return for
it had no taxable income then. The element of fraud is lacking.
At most, only negligence may be imputed to JAL for not
ascertaining the dispensability of filing the tax returns. As such,
JAL may be subjected only to the 25°/o surcharge prescribed by
the aforequoted law."
Section 248(8) of the NIRC of 1997, as amended, imposes the

surcharge of 50°/o only in two instances. First, in case of willful neglect
to file the return within the period prescribed, and second, in case a
false or fraudulent return is willfully made. Thus, it is not enough that
the taxpayer failed to file the required tax return or that the return is
sG G.R. No. 60714, October 4, 1991.
C-
DECISION
false to justify the imposition of the 50°/o for fraud. The law is clear
that "a false or fraudulent return is willfully made". 57
Based on the supporting documents submitted by petitioner, as

well as the foregoing findings of the Court, there was no sign of willful
intention on the part of petitioner to evade payment of taxes.
Moreover, there was also no understatement of revenues exceeding
30°/o. Therefore, a surcharge rate of twenty-five percent (25°/o)
instead of 50°/o is to be applied on the basic deficiency VAT of
petitioner pursuant to Section 248(A)(3) of the NIRC of 1997, as
amended.
II. COMPROMISE PENALTV- P2S,OOO.OO
Part II of the FAN 58 provides an additional compromise penalty

payable in the amount of P25,000.00 for petitioner's alleged failure to
file Summary Lists of Sales and Purchases and failure to declare zero-
rated sales for the 2nd quarter in violation of RR No. 16-05.
There being no mutual agreement between the parties, the

Court cancels the above compromise penalty. Settled is the rule that
the imposition of the same without the conformity of the taxpayer is
illegal and unauthorized. 59 RMO No. 1-90 expressly provides that
compromise penalties are only amounts suggested in settlement of
criminal liability, and may not therefore be imposed or exacted on the
taxpayer in the event that a taxpayer refuses to pay the suggested
compromise penalty. Considering petitioner did not pay the
compromise penalty imposed by respondent, it clearly did not agree
to settle the same.
In fine, petitioner is liable to pay basic deficiency VAT for the

period covering January 1, 2012 to June 30, 2012 in the amount of
P4,447,705.09, computed as follows:
VATable Sales per VAT returns p 368 297,808.49

Add: Unexplained Debits to Sales 11,014,517.17
57 Estate of Fidel F. Reyes and Estate of Teresita R. Reyes vs. Commissioner of Internal Revenue,
CTA EB No. 189 (CTA Case No. 6747), March 21, 2007.
59 Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc. and the Court of Tax
Appeals, G.R. No. L-35266, January 21, 1991.
l
DECISION
Gross Receipts subject to VAT p 379 312 325.66
Output tax due p 45,517 479.08

Less: Input tax from Current Purchases p 41,745,615.38
Less: Disallowed Input Tax p 3,125,962.95 38,619,652.43
VAT Payable p 6 897,826.65
Less: Payments Made 2,450,121.56
Basic Deficiency VAT p 4,447,705.09
WHEREFORE, premises considered, the Petition for Review is

PARTIALLY GRANTED. The deficiency VAT assessment issued by
respondent against petitioner covering the period January 1, 2012 to
June 30, 2012 is UPHELD IN PART. Accordingly, petitioner is
ORDERED TO PAY the aggregate amount of FIFTEEN MILLION
FIVE HUNDRED SEVENTEEN THOUSAND FIVE HUNDRED
SEVENTY-SIX PESOS AND SEVENTEEN CENTAVOS
(P15,517,576.17), inclusive of the 25°/o surcharge, 20°/o deficiency
interest and 20°/o delinquency interest imposed under Sections
248(A)(3), 249(8) and (C) of the NIRC of 1997, as amended,
respectively, computed until December 31, 2017, as follows:
Basic Deficiency VAT p 4,447,705.09

Add: 25% Surcharge 1,111,926.27
20% Deficiency Interest from July 26, 2012 to June 23, 2014
(P4 447.705.09 X 20% X 698/365 days) 1,701,094.88
Total Amount Due, June 23_L 2014 p 7,260,726.24
Add: 20% Deficiency Interest from June 24, 2014 to December 31,
2017 (P4,447.705.09 X 20% X 1287/365 days) 3/136,546.00
20% De!:nquency Interest from June 24, 2014 to December
31, 2017 (P7.260,726.24 X 20% X 1287/365 days) 5 120,303.93
Total Amount Due, December 31, 2017 P15L517,576.17
In addition, petitioner is ORDERED TO PAY respondent

delinquency interest at the rate of twelve percent (12°/o) on the
aggregate amount due as of June 23, 2014 of P7,260,726.24, as
determined above, computed from January 1, 2018 until full payment
thereof pursuant to Section 249(C) of the NIRC of 1997, as amended
by Republic Act No. 10963, also known as the Tax Reform for
Acceleration and Inclusion (TRAIN), as implemented by RR No. 21-
2018.
c
DECISION
SO ORDERED.
~ N. M~'A~- C~
CIELITO N. MINDARO-GRULLA
Associate Justice
WE CONCUR:
'
ER~P.UY
Presiding Justice Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby

certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of
the Court's Division.
Presiding Justice
Chairperson, Special First Division

Special First Division: Court of Tax Appeals

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Special First Division: Court of Tax Appeals

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Republic of the Philippines

COURT OF TAX APPEALS

SPECIAL FIRST DIVISION

NORTHERN MINDANAO CTA Case No. 8959

-versus- DEL ROSARIO, P.J., Chairperson

MINDA RO-GRULLA, J.:

This is a Petition for Review 1 filed on December 23, 2014 by

Petitioner Northern Mindanao Sales Corporation is a corporation

1 Docket, vol. I, pp. 14-40.

AS091-194156. 3 It is also registered with the Bureau of Internal

On the other hand, respondent is the duly appointed

On November 22, 2012, petitioner received Letter of Authority

On June 27, 2013, petitioner received a Notice for an Informal

On September 25, 2013, petitioner received another Notice for

dated September 24, 2013 from respondent, assessing it for deficiency

Petitioner received the Preliminary Assessment Notice (PAN) Part

On May 21, 2014, 13 petitioner received the Formal Assessment

On May 29, 2014, petitioner filed its administrative protest dated

On November 5, 2014, petitioner received respondent's Letter16

Petitioner filed the present Petition for Review on December 23,

"SPECIAL AND AFFIRMATIVE DEFENSES

1. Respondent reiterates and repleads the preceding

2. The Preliminary Assessment Notice (PAN) was

3. Assessment is prima facie presumed correct and made

4. Finally, Petitioner should be reminded that taxes are

The pre-trial conference 18 was set on June 4, 2015.

The parties filed their Joint Stipulation of Facts and Issues21 on

Petitioner presented, Rommel R. Malit23 and Independent

The Formal Offer of Evidence for the Petitioner25 was filed on

"P-5", "P-6"I "P-29"I "P-31"I "P-31-A"I "P-33"I "P-33-a"I "P-32"I "P-32-

In the Resolution 27 dated April 4, 2017, the Court admitted all of

Petitioner's admitted documentary exhibits are as follows:

26 Docket, val. II, pp. 822-823.

P-6 Administrative Protest dated May 28, 2014 and

P-25 Transmittal Letter dated July 11, 2013, duly received

consisting of seventeen (17) pages, filed on August 1, ·

Northern Mindanao Sales Corporation vs. The 1

Commissioner of Internal Revenue, consisting of six

numerical series '

P-35 and series "Northern Mindanao Sales Corp. ICPA Book 2:

Revenue" (Schedule of Petitioner's Sales Invoices for

Petitioner filed its Motion for Reconsideration (Resolution dated

Respondent presented Revenue Officer Jasmine Joy B. Oasay as

28 Docket, vol. II, pp. 837-839.

Respondent filed his Formal Offer of Evidence32 through

In the Resolution 34 dated December 18, 2017, the Court

The admitted documentary exhibits of the respondent are as

32 Docket, vol. II, pp. 867-870.

R-7-a R-7-d R- Name and signature of Nestor S. Valeroso

February 26, 2018 and respondent's Memorandum 37 filed through

The parties submitted the following issue for the Court's

"Whether or not Petitioner is liable for deficiency

Before addressing the stipulated issue, the Court shall first

Pertinent to the resolution of this matter is Section 228 of the

"SEC. 228. Protesting of Assessment - When the

XXX XXX XXX

The taxpayers shall be informed in writing of the law and

Within a period to be prescribed by implementing rules

Such assessment may be protested administratively by

If the protest is denied in whole or in part, or is not acted

Pursuant to Section 228 of the NIRC of 1997, petitioner has thirty

Respondent failed to act on petitioner's protest within 180 days

The Court shall now resolve the stipulated issue.